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Cash Wobbles Lower; Futures Grind to New Six-Month Low

Physical natural gas values for Wednesday delivery slipped lower, led by hefty declines at Mid-Atlantic points with major assistance from New England and the Marcellus region. Eastern power loads were forecast lower. Most points were off by a few pennies up to about a nickel, and those that did make it into the plus column did so by only a penny or two. NGI’s National Spot Gas Average fell 3 cents to $4.02.

Futures trading was lethargic with the August contract confined to a 6-cent range, but that did not prevent futures from hitting a new six-month low. At the close, August had retreated 5.0 cents to $4.097 and September was down 4.6 cents to $4.094. August crude oil fell 95 cents to $99.96/bbl.

Spot prices into the Mid-Atlantic were down more than 30 cents as weather forecasts called for moderation as a cool front was expected to traverse the area. The National Weather Service in suburban Philadelphia predicted "a cold front over western Pennsylvania will cross New Jersey and Delaware tonight as low pressure forms over New Jersey. The front and low pressure may linger along the middle Atlantic coast Wednesday before shifting out to sea Wednesday evening. High pressure over the plains will spread east and cover the Middle Atlantic States Thursday through Saturday. A warm front will move very slowly northward into the Middle Atlantic States next Sunday and Monday."

That cold front was enough to knock temperature forecasts lower for Wednesday. Wunderground.com predicted that Boston's high of 85 would tumble to 76 Wednesday but rebound to 84 Thursday. The seasonal high in Boston is 82. New York City's Tuesday high of 85 was anticipated to ease to 82 Wednesday and inch back up to 83 Thursday. The normal mid-July high in New York is 84. Philadelphia's Tuesday high of 90 along with a heat index of 99 was forecast to slide to 85 Wednesday and hold through Thursday. The normal high in Philadelphia is 83.

Power loads were forecast to decrease throughout the area. The New England ISO forecast Tuesday's peak load of 22,520 MW would slide to 20,610 MW by Wednesday, and the New York ISO reported Tuesday's peak load of 26,277 MW would fall to 24,128 MW Wednesday.

Next-day gas bound for New York City on Transco Zone 6 dropped 36 cents to $3.05, and deliveries to Tetco M-3 fell 30 cents to $2.94.

Northeast points weren't far behind. Deliveries Wednesday to the Algonquin Citygates skidded 17 cents to $3.58, and parcels at Iroquois Waddington rose 3 cents to $4.27. Gas on Tennessee Zone 6 200 L lost 15 cents to $3.60, and next-day deliveries to Millennium Pipeline were seen 16 cents lower at $2.94.

Marcellus points were also in the loss column. Gas on Transco Leidy fell 19 cents to $2.76, and gas on Tennessee Zone 4 Marcellus shed 8 cents to $2.67.

Midcontinent prices were narrowly mixed. Gas at the NGPL Midcontinent Pool fell 2 cents to $4.01, and gas on ANR SW dropped 3 cents to $4.11. Gas on Panhandle, however, rose 5 cents to $3.99 and parcels on OGT shed a penny to $3.88.

Gas purchases for power load were expected to be off significantly as forecaster WSI Corp. is expecting mild conditions across major power grids. In its morning forecast it predicted that PJM should see "a cold front slide across the Mid Atlantic [Tuesday] into Wednesday morning with another round of heavy showers and storms, which may be strong. Meanwhile, unseasonably cool and less humid conditions will overspread western PJM. Generally fair, seasonably cool and less humid conditions should overspread the power pool during Wednesday into Thursday.

"High pressure will slowly erode during the end of the week into the weekend. This may allow temperatures and humidity levels to creep back up, which may result in the increasing chance for widely scattered showers and storms. Rainfall amounts may range 0.25-1."

Power generation in Texas (ERCOT) may also take a hit as "a cold front will continue to sag southward [Tuesday] and will be a focal point for scattered showers and storms across central and eastern portions of the state, including San Antonio, Austin and Houston," the forecaster said. "A disturbance may dive into the south-central U.S. during late Wednesday into the end of the week with the potential for heavy rain and thunderstorms. Conditions should gradually improve during the weekend, though there will remain a chance of isolated showers and storms. Rainfall amounts may locally exceed 1-3 inches across northern and eastern parts of the state, which may support flooding."

Traders see somewhat supportive weather beyond this week's cool spell. "This week's unusually cool patterns are expected to be replaced next week by more normal trends with some warming conditions along the eastern seaboard. While these updated forecasts don't appear sufficient to ignite much of a price advance, they do appear capable of sharply restricting downside price follow-through," said Jim Ritterbusch of Ritterbusch & Associates.

"While we are still leaving room for slippage to the $4.05 area, we will strongly caution against fresh shorts even on a rally back to today's highs,” he added. “However, we still see a soft spot trading environment this week due to much below normal temps with the August-September switch swinging to contango for the first time since last September by mid-week.

"The most probable course of trade through the rest of this week is some further consolidation mainly within today's range into Wednesday when pre-EIA positioning could crank up price volatility. Any additional tilt toward warming east coast trends toward month's end could easily push nearby futures to the $4.24 level prior to Thursday's storage report offering further guidance. We will also be looking to re-establish bull spreads into the fall-winter portion of the curve on any additional shifts toward warm weather."

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